Does the post-term restriction in the Chocolate Fish Coffee Guaranty apply after a Transfer by Guarantor?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
For two years after the Franchise Agreement expires or is terminated for any reason (or, if applicable, for two years after a Transfer by Guarantor), Guarantor shall not directly or indirectly have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor located within five miles of Franchisee's Territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer, as applicable.
If the Franchise Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to the 2024 Chocolate Fish Coffee Franchise Disclosure Document, the post-term restriction in the Guaranty applies after a Transfer by the Guarantor. Specifically, for two years after a Transfer by Guarantor, the Guarantor cannot have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any competitor. This restriction applies to competitors located within five miles of the franchisee's territory or the territory of any other Chocolate Fish Coffee business operating on the date of the transfer.
This non-compete obligation is significant for anyone acting as a Guarantor, as it restricts their ability to engage with competing businesses for a defined period after they transfer their interest. The restriction is geographically limited to a five-mile radius around existing Chocolate Fish Coffee locations, but this could still significantly impact the Guarantor's future business opportunities.
It is important to note that if the Franchise Agreement is terminated before the territory is determined, the area of non-competition will be the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination. This clause protects Chocolate Fish Coffee's market and customer base even if the franchise is terminated early. The Guarantor should carefully consider these restrictions and their potential impact before signing the Guaranty.